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Commodities

Column: Condition scores for Argentina’s thirsty crops may not be what they seem

FORT COLLINS, Colo. (Reuters) - February and March are perhaps the two most important months for Argentina’s corn and soybeans to receive ample rainfall, though last month was unusually dry and this month could follow suit, according to the latest weather forecasts.

Corn plants are seen on a farmland in Chivilcoy, on the outskirts of Buenos Aires, Argentina April 8, 2020. REUTERS/Agustin Marcarian

Yields in the No. 3 corn and soybean exporter are not projected to be great anyhow, though the poor timing of the latest dry spell could reduce potential even further. Crop condition ratings may also be sending mixed and potentially faulty messages to the market.

Weather models as of Thursday agreed that Argentina’s grain belt will stay mostly dry for at least another week. The European model shows the first chances for substantial moisture coming at the end of next week, while the American model suggests rain might not arrive for another two weeks.

Last month was among the driest Februarys on record for key growing areas with rainfall 41% below the long-term average. That was wetter than February 2019, just before the country notched a new record bean yield, and February 2018, which was very hot and linked with one of Argentina’s worst-ever harvests.

February’s cool temperatures offered some protection from the dry conditions, though the wet January gave a critical boost to the crops. Late 2020 was the driest such period in a decade, though January rainfall was 29% above average and one of Argentina’s wettest ever.

Historically, crop yields, especially those for soybeans, usually turn out poor when both February and March precipitation are below average. However, the 2018-19 harvest bucked that trend after those two months were dry, and record January precipitation played a large role.

The Buenos Aires Grains Exchange said on Thursday it could cut its soybean and corn production forecasts from 46 million tonnes apiece if rains disappoint in the coming weeks. Market analysts predict the U.S. Department of Agriculture on Tuesday will slightly trim its soy and corn outlooks from a respective 48 million and 47.5 million tonnes.

CONDITION CONFLICTS

According to the Buenos Aires Grains Exchange, just 10% of Argentina’s soybeans were in good or excellent condition as of Thursday, a shockingly low portion. However, some 70% of the crop is in normal condition, meaning that 20% of the crop is in fair or bad condition, up from 15% last week.

The exchange’s ratings have just those three categories, while scores from Argentina’s agriculture ministry use four: very good, good, fair and bad. The ministry shows ratings at the sub-provincial level, so it would be up to the user to derive a national number.

As of Thursday in the top three provinces of Cordoba, Buenos Aires and Santa Fe, the share of soybeans in good or very good state per the ministry was 85%, 82% and 90%, respectively. That compares with 90%, 83% and 96% at the end of January.

It is clear these two sets of condition ratings might offer a very different picture of crop health in Argentina. But it is possible that with an extra category, the ministry’s “good” designation overlaps some of the exchange’s “normal.” Therefore, it is important to consider the other categories, not just the crops in good or excellent condition.

The exchange rates 25% of the corn in good or excellent condition, some 59% normal and 16% fair or bad. Good or excellent is down 5 points on the week while fair or bad is up 4 points.

The ministry shows corn in the top three provinces of Cordoba, Buenos Aires and Santa Fe is 70%, 90% and 89% good or very good, respectively. All of those are within 1% of the late January scores.

For comparison with this year’s conditions, at the start of March 2018, soybeans per the ministry were 64%, 64% and 44% good or very good in Cordoba, Buenos Aires and Santa Fe, respectively. The corresponding corn ratings were 60%, 66% and 42%.

USA COMPARISON

Condition ratings undoubtedly draw contrasts with those of the United States, which are heavily followed during its corn and soybean growing season. Those ratings, published by USDA’s statistics service, have five categories: excellent, good, fair, poor and very poor.

The lowest good-to-excellent ratings for U.S. corn and soybeans during the nightmare 2012 season were 22% and 29%, respectively, as crops were shredded by drought. This puts some perspective around Argentina’s current ratings from the Buenos Aires Grains Exchange.

The exchange also has substantially more of Argentina’s crops in its middle category of normal (70% on soybeans, 59% on corn) versus what is typical for the United States’ middle category of fair. Within the last decade, the most U.S. corn and soybeans in fair condition for any week were 32% and 36%. That came in 2019 for corn and soybeans, and 2012 had a tying week with soybeans.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Matthew Lewis

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